Special Education Cross-Subsidies

In 1975, the federal government passed the Individuals with Disabilities Education Act and pledged to provide 40% of the funding for the newly mandated educational programming.  However, the federal contribution never actually approached this level.  As a result, states and local school districts have had to bear most of the costs of these mandated special education services. 

In Minnesota, special education has enjoyed strong statewide support.  Special education is integrated into the general education aid formula and has its own type of categorical aid.  But since 2003, after a revision to the cost growth formula, the state’s contribution to special education has not kept pace with actual growth in special education expenses.   

Because federal and state government categorical aid to special education does not cover the full costs of the legally required services, school districts are forced to cross-subsidize those services with funds from other sources.  Since 2007, the Minnesota Department of Education has been required to file an annual report to the Minnesota legislature informing them about the state of district cross-subsidization of special education.

The above chart, taken from the 2011 report “Special Education Cross-Subsidies Report,” shows the amount of categorical aid from federal and state sources is consistently insufficient to cover special educational expenditures.  The gap between the two lines represents the amount of the actual cross-subsidy for the year, which is reflected directly in the chart below.  I received this chart when attending a presentation by Tom Melcher of the Minnesota Department of Education to the Minnesota Association of School Business Officials in February 2012. 

These two charts have some interesting points worth highlighting.  First, the temporary impact of the stimulus can be seen from years 2008-2011 by the sharp increase in revenue and the decline in the amount of cross-subsidization.  In FY 2012, however, the stimulus' effect is gone, and the amount of cross-subsidization required has risen substantially.  Second, the top graph shows a growing gap between expenses and revenues as expenditures are rising faster than revenues.  This indicates that cross-subsidization will continue to increase.

Another interesting graph I received at the MN Association of School Business Officials presentation in February 2012 was the one posted above.  The green bar represents the amount of cross-subsidization required in each category of district by location and size.  Of note here is that 44% of the total special education expenditures in the inner ring suburbs were covered by cross-subsidization, compared to 36% in the Minneapolis and Saint Paul districts.

Cross-subsidization is an important measure to track because it indicates the extent to which mandated special education services are taking resources away from other types of school services.  In Minneapolis and Saint Paul, $968 of a conventional student's $5,224 general education aid allotment goes to subsidize the unfunded special education services for other special needs children.  Tracking these numbers is one thing.  Using them to discuss the difficult philosophical and ethical issues underlying them is another matter altogether.